Short- and long-term unemployment

The US, despite its nascent recovery, is learning some hard lessons about the differences between short-term unemployment and long-term unemployment.

South Africa should have some lessons to teach here. We have enough experience to expect some insights. Sadly, I’m not sure we’ve done much except become accustomed to it.

Long-term unemployed – one definition is those who have been unemployed for longer than 27 weeks – increasingly find themselves unemployable with stale skills, stigma and demotivation driving them out of the labour force.

A Brookings Institute paper talks to the greater problem that even on returning to work, the long-term unemployed often find themselves unemployed again.

only 11 percent of those who were long-term unemployed in a given month returned to steady, full-time employment a year later.

Another telling statistic is, that for a given month (between 2008 and 2012), of those who were “long term unemployed” a third were not considered part of the labour force 15 months late. They’d stopped actively looking for work. Barely more than a third work employed and many of these didn’t have regular, full time work.

Meanwhile, short term unemployment rates in the US have been falling as the steady jobs created figures trickle in month after month. Short term unemployment at 4.0% is actually lower than average. This relatively low short-term unemployment rates mean that at some point, wages will likely increase adding to inflationary pressures (a way off still, but it will come modestly eventually) which just increases the cost of living for those long-term unemployed who still don’t have work.

If you’re South African, this should sound horribly familiar. Even with our idling economy, those unemployed with skills and recent employment will probably find a job fairly soon. There are plenty of areas where filling positions is hard. We have upward pressure on wages across the board for skilled, semi-skilled and even unskilled workers. A combination of imported inflation, pressures and intentions to decrease wage gaps, powerful unions and restrictive labour laws mean that the long-term unemployed are left well by the wayside even while wages tick higher.

In the US, long-term unemployment rates are coming down but are well above their long-term averages. Part of this decrease also reflects exits from the labour force as unemployed stop looking for work. The graph above shows the scale of the problem in Greece and Spain and the fairly remarkable recovery for Germany.

From the Brookings paper by Alan B. Krueger, Judd Cramer, and David Cho of Princeton University:

Past research has found that the longer a worker is unemployed, the less time they spend searching for a job, the fewer job applications they submit, and the less likely they are to be called in for an interview for the jobs to which they do apply.

Again, this perfectly describes a South African between the ages of 18 and 25 without matric or even with matric and no further education struggling to find work. Too many of these are being supported by parents and grand-parents.

The situation in the US is similar – those with less than a “college degree” are far more likely to be unemployed and far more likely to be long-term unemployed. Interestingly though, those aged 16-34 are more likely to be short-term rather than long-term unemployed, whereas for older ages the reverse is true.

So we’re back to familiar ground. Education drives job opportunities. Youth without skills struggle to find work, become long term unemployed and steadily become less employable, less likely to find regular work. Let’s just hope our “austerity budget” recognises the critical importance of educations, skills-training and youth employment projects before it sets us further back on our two-decade journey to economic decrepitude.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation.
David Kirk runs Milliman’s actuarial consulting practice in Africa.
He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.
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